The Hong Kong government is pushing forward with plans to introduce licensing bills aimed at regulating stablecoin and over-the-counter (OTC) crypto trading frameworks. The goal is to oversee the crypto industry and strengthen investor protection.
Christopher Hui, the Secretary for Financial Services and the Treasury, disclosed this development while responding to a lawmaker at the Legislative Council.
The Financial Services and the Treasury Bureau (FSTB) initiated a public consultation earlier this month on legislative proposals for establishing a licensing regime tailored to providers of OTC crypto trading services. Stakeholders and the public have until April 12 to contribute their feedback.
In addition to the OTC trading framework, the FSTB and the Hong Kong Monetary Authority (HKMA) jointly launched a consultation in December concerning the regulation of stablecoin issuers. The proposal suggests that all stablecoin issuers referencing fiat currencies must acquire a licence from the HKMA. The consultation period for this proposal concluded on February 29.
Hong Kong Government to Introduce Bills Following Consultation Outcomes
Based on the consultations’ outcomes and the progress of preparatory work, the government plans to promptly submit bills related to these licensing regimes to the Legislative Council, as stated by Hui.
Hui stressed the necessity for regulation, citing an increase in crypto-related criminal cases addressed by the Securities and Futures Commission (SFC). In 2021, there were 1,397 cases, which surged to 2,336 in 2022 and further rose to 3,415 in 2023. The total amount involved in these cases reached nearly HK$4.4 billion ($562.6 million) in 2023, compared to HK$1.7 billion in 2022 and HK$824 million in 2021.
Hui also highlighted the authorities’ stringent approach to eliminating bad actors from the industry, citing the example of the JPEX crypto exchange, which was shut down last year. As of February 20, 70 individuals linked to the platform have been arrested, although no prosecutions have commenced yet.
Request for Approval of Yuan-Linked Stablecoins
Earlier this month, the Hong Kong General Chamber of Commerce (HKGCC) urged policymakers to consider permitting the issuance of Chinese yuan-linked stablecoins. The influential business organisation proposed the exploration of a “Virtual Asset Connect Scheme” to retain and attract talent and businesses in Hong Kong.
The HKGCC suggested that the government should authorise the issuance of yuan-linked stablecoins or those backed by a basket of various fiat currencies, including the yuan, Hong Kong dollar, or U.S. dollar.
Meanwhile, experts anticipate that Hong Kong will approve spot crypto exchange-traded funds (ETFs) by mid-year. Gary Tiu, the executive director and head of regulatory affairs at OSL, a Hong Kong-licensed cryptocurrency exchange, indicated that OSL is in discussions with multiple fund companies, with five to ten firms considering the introduction of spot crypto ETFs.